Chrysler Wants Franchise Terminations

NEW YORK (AP) - Chrysler heads back to bankruptcy court Thursdayto ask the judge overseeing its case to allow it to terminate thefranchise agreements of 789 of its dealers, despite the protests ofmany dealers who say the move could shutter their businesses forgood.

U.S. Judge Arthur Gonzalez is expected to hear testimony fromChrysler LLC executives and dealers during what's expected to be alengthy hearing. The proceedings start at 8 a.m. EDT.

Auburn Hills, Mich.-based Chrysler maintains that it needs toreduce its dealer base by about 25 percent to a leaner network ofabout 2,400 dealers in order to emerge from Chapter 11 bankruptcyprotection as a stronger company.

But the dealers argue that they don't cost the automakeranything. They say that if Gonzalez approves Chrysler's motion itwill result in the shuttering of hundreds of dealerships andthousands of workers will lose their jobs.

A group representing about 300 of the dealers slated to losetheir franchises have filed an objection. They also earlierobjected to Chrysler's motion to sell the bulk of its assets to agroup led by Italy's Fiat Group SpA, because it was tied to theplan to eliminate the dealerships.

Thursday's hearing comes a day ahead of Chrysler's appearance infront of the U.S. Court of Appeals for the Second Circuit in NewYork.

Late Tuesday, that court halted Chrysler's sale of most of itsassets to Fiat pending an appeal by a trio of Indiana state pensionand construction funds. Arguments are scheduled for Fridayafternoon.

"We are pleased the Court of Appeals has agreed to hear ourarguments," Indiana Treasurer Richard Mourdock said in astatement. "As we have stated from the beginning, Indiana retireesand Indiana taxpayers have suffered losses because of unprecedentedand illegal acts of the federal government."

Chrysler has maintained that the deal with Fiat is its only hopeof avoiding selling itself off piece by piece. If the sale doesn'tclose by June 15, Fiat has the option of pulling out of the deal.

In addition, production at Chrysler's manufacturing plantsremains halted pending the sale's closing.

"We are pleased that the Court of Appeals is setting thisschedule and has recognized the sense of urgency Chrysler has topreserve and protect its going concern value," Chrysler said in astatement released Wednesday afternoon. "We look forward to anexpeditious conclusion to this matter and to getting back tobuilding vehicles."

The funds, which include the Indiana State Police Pension Fund,the Indiana Teacher's Retirement Fund, and the state's Major MovesConstruction Fund, claim that the deal as structured unfairlyfavors the interests of Chrysler's unsecured stakeholders ahead ofthose of secured debtholders such as themselves.

They also challenged the constitutionality of the U.S. TreasuryDepartment's use of Troubled Asset Relief Program, or TARP, fundsto supply Chrysler's bankruptcy protection financing.

Late Sunday, U.S. Judge Arthur Gonzalez, the bankruptcy judgeoverseeing Chrysler's case, issued a ruling approving the salefollowing three marathon days of testimony and arguments. Gonzalezalso ruled that the funds do not have the standing to challenge theuse of TARP money because they will receive their fair share of the$2 billion set aside for secured debtholders, which is more thanthey would have received if Chrysler had liquidated.

Under the terms of the agreement, a United Auto Workers unionretiree health care trust will receive a 55 percent stake in thenew company, while Fiat will get a 20 percent stake that canincrease to 35 percent. The remaining 10 percent of the companywill be owned by the U.S. and Canadian governments.

In the days leading up to Chrysler's Chapter 11 filing, theautomaker struck a deal with the majority of secured lenders togive them $2 billion in cash, or 29 cents on the dollar, to erasethe $6.9 billion in debt. But some of the debtholders balked andthe automaker was forced to file for bankruptcy protection on April30.

The Indiana funds hold $42.5 million, or less than 1 percent, ofChrysler's total $6.9 billion in secured debt. They bought the debtin July 2008 for 43 cents on the dollar.

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